We are aware that a number of employers are unsure at this time about what they need to pay employees and whether they should apply for the Government Subsidy or not.
The Government is regularly clarifying aspects of the Subsidy and the below is our current understanding of how it may apply as at 27 March 2020.
Do employees still have to be paid?
- As a general rule, where employees are, apart from the shutdown, otherwise willing and able to work, employees are entitled to be paid by their employer. This will be informed by the following however and the terms of each employee’s employment agreement.
What are some possible relevant clauses in the employment agreement?
- Check to see what the agreement says on such things as unpaid leave, special leave, annual leave, what happens in a pandemic, reducing hours, varying agreements, or, in a worst case scenario, redundancy.
- Remember however that, any proposed changes to such things as the employees’ usual hours of work or pay, regardless of what the employment agreement says, should be discussed with employees in advance (i.e. consultation, listening to their feedback/suggestions), rather than simply presented to employees. Any agreed variation should also be recorded in writing between the employer and employee.
- The duty of “good faith” continues to apply, even in these difficult circumstances. In layman terms, “good faith” simply reflects the “golden rule” and means treating your employees like you would like to be treated (or how you might like a member of your family to be treated by their employer).
The Government subsidy – general information
- See our earlier article here on applying for the Subsidy.
- Where employees will not actually be physically working or will work for less than their usual hours, say from home, the short-fall, up to 80%, should be recorded as special paid leave.
- So, if an employee is not working at all, the 80% will be recorded fully as special paid leave. If the employee is working half their usual hours, half will be recorded as usual wages/salary and the other half, up to 80%, would be recorded as special paid leave.
- The Government Subsidy must then be used by the employer towards their 80% contribution (or any additional wage payments the employer decides to make to employees).
- The balance – 20% – will need to be discussed and agreed with employees and could be a mixture/combination of unpaid leave, annual leave, sick leave or additional special paid leave. If agreement cannot be reached on employees taking annual leave, the employer can direct employees to use annual leave but only on 14 days’ notice.
- The advice we have received on taxation of the Subsidy is that:
- the wage subsidy payment will not be subject to GST;
- the wage subsidy paid to the employer will not be taxable;
- the wage subsidy paid to the employee, by the employer, will not be deductible; and
- the wage subsidy is taxable to employees, being included as part of their normal wages and therefore being subject to their usual PAYE, Student Loan, Kiwisaver deductions, etc.
“What are Best Efforts?”
What about if I’m unsure if I can pay staff 80% of the usual wages for 12 weeks or whether I might ultimately have to make employees’ redundant?
- The terms of the subsidy refer to employers making “best efforts” to retain staff and pay staff at least 80% of their normal income for the subsidised period (in order to qualify for the subsidy).
- As at 27 March 2020, the Government has clarified that, if an employer has made “best efforts” but cannot pay staff 80% of their usual salary/wages, an employer may still claim the Subsidy but must pass on the whole of the subsidy to their employees.
- An employer will still need to be prepared to demonstrate the steps it took, prior to that time, to avoid that situation. In other words, what evidence do you have of your “best efforts.” This could include:
- Seeking third party financial assistance, such as from a bank or landlord or suppliers (i.e. further funding, mortgage holidays, interest free terms, deferred payments, staggered payments etc);
- Seeking advice from the Chamber of Commerce, a relevant industry association or your accountant; and
- Discussing with staff about whether they would be prepared to take their annual leave or sick leave entitlement to top up the Government Subsidy or accept reduced paid hours/unpaid leave. This could include only being paid the amount of the Government Subsidy, if necessary.
- MSD will have the ability to check applications and verify information at a later date, including an employer’s declaration at the time of application that they will make “best efforts” to retain staff and pay at least the 80% cap.
What about in a worst case scenario and I need to look at making employees redundant?
- As at 27 March 2020, the Government has clarified that, in order to claim the Subsidy, employers must keep employees in employment for the period of the Subsidy (even if they are only passing on the Subsidy to employees to keep them in employment).
- It remains unclear what will happen if an employer claims the Subsidy but then makes an employee(s) redundant but it is possible (but not yet confirmed) that employers may need to repay the Subsidy relating to those employees, or at least, relating to the period of time after the employee’s employment ended.
- Employers will also need to again be prepared to demonstrate what steps they took to retain staff prior to that time.
- If a redundancy is undertaken, employers should again check the terms of their employment agreement to see what it provides regarding redundancy. For example, it may define when an employee will be considered redundant, the process that must be followed, what notice must be paid out, and whether any redundancy compensation is payable. The terms of the agreement will need to be followed.
- A fair process, carried out in “good faith” will again be required, although consultation will need to be done by email, telephone or applications such as “zoom” and relevant timeframes for consultation and decision making may be able to be reduced.
This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact Lois Flanagan – firstname.lastname@example.org or Hannah Carey – email@example.com at Parry Field Lawyers.